Mixed Again, But Sellers Gaining Some Momentum

Markets mixed as investor continue to deal with the talk over the current market levels and valuations. This is where it gets interesting for me as the investing populace attempts to rationalize and hypothesize about the market values. This is what I refer to as speculation as no one really can determine what will happen moving forward, but if we are now going to throw around fundamental valuations on stocks look for the sellers to gain control short term. When you break down the likes of Google, Priceline, Amazon, etc. you will not find those numbers favorable relative to what many would consider normal. That said, it is time to adjust our stops according to our risk tolerance and protect our assets going forward. Take into account your time horizon and downside movement you are comfortable with going forward.

The markets opened lower, found some buyers, but then again sold later in the trading day. The NASDAQ, as we see below is the biggest loser on the day. This goes with what we discussed in our video update last night relative to the downside risk in play. Watch, let it evolve and make the necessary adjustments.

The global markets respond in kind to the US markets as the downside talks heat up. EAFE was down led by Europe today. The emerging markets retreated following four strong days to the upside. The dollar was weaker today as well with the monetary policy coming into question on what the new Fed Chairperson will do with stimulus. Crude oil bounced with the weaker dollar and we will watch to see how commodities play out moving forward.

Trend of the Market:

The trend of the market remain on the upside both short term and long term. The micro term (13 weeks or less) is where investors are focused currently. Why? The media and analyst feeding them are concerned about the current valuation of the market overall versus buyers appetite for risk. The VIX index shows the worry factor is low at this point, but the index has ticked higher the last two days. We have all voiced our concerns about the movement of the market near term, but we have to let it play out versus speculating on direction.

Dow Industrial Index (DIA) – moved back below the 16,000 level and talk of a top. We have two bars that look like a top, but the test to 15,700 is not a correction, just a pullback and reasonable within the current framework. 

S&P 500 Index (SPY) – Hit new high on Friday and looks like a better top formation than the Dow at this point. Watching to see fi the downside leadership will come from this index.. Stops in place on any trades and manage your downside risk in longer term holdings.

NASDAQ Index (QQQ) –  The index was the biggest loser again today bringing the downside to 1.5% for the week thus far. Internet and semiconductors both lost 1% on the day and led the downside. All the talk of selling is weighing on the daily activity. Watch and be aware of the exits and opportunities in this market.

Russell 2000 Small Cap Index (IWM) –  My question… ‘if the previous leader is not responding on the move higher, is there a pullback on the horizon?’ The answer the last two days is yes. Moved back to support today at the $109 level. Give it room, but watch to see how this plays out going forward. Move below $108.65 would be exit signal on any short term trades.

Sectors of Interest:

Technology (XLK) tumbled 0.3% on the day, but the parts were worse than the whole again on Tuesday. Semiconductors (SOXX) were down 1.1%, and Internet down 1%. The move in the internet space was led by Groupon (-5.6%) and Salesforce (-5%) as the selling accelerated in the sector. This is overvalued stocks getting hit on earnings, guidance or any other disappointment. Tough to hold this sector currently.

Semiconductors (SOXX) made a move back to the 50 DMA today. Watch to see if the short term trendline off the August low is broken. There is plenty of negative in the sector and worth digging in to see where the weakness is for chip stocks.

Energy (XLE) the conglomerates continue to lead the upside for the sector. The commodities are still weak with natural gas dropping 1.8% on the day. UGA and OIL both move modestly lower on the day as well. The services and exploration have shown strength, refineries bounced  and overall the index is in good shape short term.

Treasury Bonds (TLT) – Last week the yields started to move lower and today they bounced higher pushing the bonds lower again. We have seen some defensive moves in regard to the Fed, but the pressure on bonds remains in play short term. Not interested until we gains some clarity in the overall outlook for yields. 

What to Watch Tomorrow:

Trading Notes tomorrow morning to set the tone for the trading day. Don’t get them? Send and email to don@jimsnotes.com to find out how to try them free.